_____ ratios measure the ability to meet short-term financial obligations.
A.Asset
B.Liquidity
C.Profitability
D.Market
Consider the following leverage scenarios:
If under certain circumstances, financial leverage enhances performance measured by
ROE and EPS, why does shifting from equity into debt have no effect in this case?
A.The company hasn’t repurchased enough shares of stock with borrowed money.
B.The money the company is earning on its capital is exactly what it costs to borrow.
C.ROCE is too high.
D.ROCE is equal to the after tax cost of debt.
Toys-r-Cool Inc.’s constant growth stock’s last dividend was $1.50. It is selling for
$30.20 in a market in which similar stocks return 12%. Calculate the stock’s anticipated
growth rate.
A.6.7%
B.8.7%
C.10.9%
D.12%
In the MM model, as the proportion of debt in the capital structure increases, the cost of
equity:
A.increases.
B.decreases.
C.remains unchanged; there is no relationship between the two.
D.initially rises rapidly, then increases slowly beyond some point.
If a firm issues $5 million of commercial paper with a maturity of three months at an
annual interest rate of 8%, the proceeds of the issue are:
A.$4,900,000.
B.$4,629,630.
C.$4,901,961.
D.$4,600,000.
Dittmar Corp. is considering an operational change that will increase its DOL from 2.0
to 3.0. It will be funding this change with debt so that its DFL will increase from 1.2 to
1.5. Analysts believe that the overall change could increase sales by as much as 10% if
it is successful, but could decrease sales by 6% if it is not successful. What is the range
of possible changes in EPS based on this information?
A.Decrease of 18% to an increase of 30%
B.Decrease of 9% to an increase of 15%
C.Decrease of 6% to an increase of 10%
D.Decrease of 27% to an increase of 45%
E.Decrease of 24% to an increase of 40%
Exchange rate risk:
A.is the likelihood of an exchange rate remaining constant.
B.is the chance of gain or loss from exchange rate movement between the time an order
is placed until it is paid for.
C.is the chance of losing money on a domestic transaction.
D.is very small when dealing with other developed countries.
In calculating the WACC, it’s most appropriate to use:
A.market values for structure and component costs because the best reflect next year’s
capital costs which will be encountered when money is raised for future projects.
B.book values for structure and component costs because these reflect the actual
existing capital structure and what the firm really pays for the capital it has.
C.the target structure because it’s in some sense the best.
D.market values for structure and target values for costs because they’re the most
practical.
The Florida lottery agrees to pay the winner $250,000 at the end of each year for the
next 20 years. What is the future value of this prize if each payment is put in an account
earning 9 percent?
A.$2.28 million
B.$12.79 million
C.$14.32 million
D.$5.00 million
The constant growth model, or Gordon model, is formulated as follows:
The model can be recast to focus on the expected return implied by the constant growth
assumption, as follows:
A.g = [P0(k-g)/D0] – 1.
B.D1 = P0(k – g).
C.ke= D1/(P0– g).
D.ke= [D0(1+g)/P0]+ g.
Suppose pre-tax earnings are $100,000.00 and the corporate tax rate is 42%. How much
additional money can a business owner receive by declaring the earnings as personal
income which is taxed at a rate of 31%?
A.$11,000.00
B.$42,000.00
C.$31,000.00
D.$3,200.00